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Monthly Archives: July 2017

Investors attracted by bitcoin & other altcoins should recognize their downsides.

BY GREG OLIVER

Bitcoin. Ethereum. Litecoin. Ripple. These are just four of the cybercurrencies attracting opportunistic investors today. Are they the next big thing? Or the next big bust?

The answer to that question may vary per day, week, month, or year. These altcoins are classified as commodities, not currencies, by the Commodity Futures Trading Commission. Like all commodities, their value can quickly change.1

This spring, a bitcoin bubble popped. As 2017 unfolded, the value of a single bitcoin tripled, reaching more than $3,000 in May. Just weeks later, it was down to around $2,245, sliding roughly 25%. That tumble paled in comparison to the dive it took starting in late 2013, when its price sank from above $1,000 to about $200. After losing 80% of its value, the price then stayed around $200 for nearly three years.1

Ethereum went on an even wilder ride. An ether was worth $8 when 2017 started. By June, its value was hovering near $400. In mid-July, the price slipped below $200.2

If bitcoin and ethereum were stocks, price fluctuations like this would leave their shareholders alternately exhilarated, horrified, and exhausted. Yet, many equities investors are looking at cybercurrencies with great interest, seeing “money to be made.”

As the above examples show, money invested in these commodities can also easily be lost. Extreme volatility aside, ethical and moral issues are also complicating the acceptance of altcoins.

Cryptocurrency may be revolutionary, but it is also shadowy. In the opinion of the Securities and Exchange Commission, bitcoin and other little-regulated altcoins are ripe for criminal activity, particularly fraud and currency manipulation. The Treasury Department’s Financial Crimes Enforcement Network agrees.1

Cryptocurrencies have been linked to money laundering, a common practice of drug cartels. They are also convenient for online gambling operations. Does an investor really want to risk supporting these activities? Some analysts argue that these doings have been fundamental to the rise of bitcoin and ethereum.2

You may be curious to know how the Internal Revenue Service sees cybercurrency. It defines bitcoin as a form of property, and it may end up broadly applying that definition to other altcoins.1

As more and more businesses are taking digital currency payments, altcoins will remain economically viable. Analysts at Morgan Stanley, however, see the cryptocurrency rally slowing soon unless governments start to provide federal oversight for bitcoin and its ilk.3

If you are nearing retirement and marveling over the rise of bitcoin and ethereum, take a step back and consider the risk exposure of these investments. Putting any portion of your retirement savings in such a hugely speculative commodity is perilous. If it scared you when the S&P 500 lost half its value in the bear market of 2007-09, imagine investing in a cybercurrency and seeing 25-80% of the value of your investment erode in weeks. It has happened, and it could happen again.4

Altcoins are spicing up the investment world these days, but you may be better off with a plain vanilla portfolio.

Saving More Money, Now & Later
You could save today & tomorrow, often without that penny-pinching feeling.

BY GREG OLIVER

Directly & indirectly, you might be able to save more per month than you think. Hidden paths to greater savings can be found at home and at work, and their potential might surprise you.

Little everyday things may be costing you dollars you could keep. Simply paying cash instead of using a credit card could save you four figures annually. An average U.S. household carries $9,000 in revolving debt; as credit cards currently have a 13% average annual interest rate, that average household pays more than $1,000 in finance charges a year.1

The typical bank customer makes four $60 withdrawals from ATMs a month – given that two or three are probably away from the host bank, that means $5-12 a month lost to ATM fees, or about $60-100 a year. A common household gets about 15 hard-copy bills a month and spends roughly $80 a year on stamps to mail them – why not pay bills online? Automating payments also rescues you from late fees.1

A household that runs full loads in washing machines and dishwashers, washes cars primarily with water from a bucket, and turns off the tap while shaving or brushing teeth may save $100 (or more) in annual water costs.1

Then, there are the big things you could do. If you are saving and investing for the future in a regular, taxable brokerage account, that account has a drawback: you must pay taxes on your investment income in the year it is received. So, you are really losing X% of your return to the tax man (the percentage will reflect your income tax rate).2

In traditional IRAs and many workplace retirement plans, you save for retirement using pre-tax dollars. None of the dollars you invest in those plans count in your taxable income, and the invested assets can grow and compound in the account without being taxed. This year and in years to follow, this means significant tax savings for you. The earnings of these accounts are only taxed when withdrawn.2,3

How would you like to save hundreds of dollars per month in retirement? By saving and investing for retirement using a Roth IRA, that is essentially the potential you give yourself. Roth IRAs are the inverse of traditional IRAs: the dollars you direct into them are not tax deductible, but the withdrawals are tax free in retirement (assuming you abide by I.R.S. rules). Imagine being able to receive retirement income for 20 or 30 years without paying a penny of federal income taxes on it in the years you receive it. Now imagine how sizable that income stream might be after decades of compounding and equity investment for that IRA.4

Many of us can find more money to save, today & tomorrow. Sometimes the saving possibilities are right in front of us. Other times, they may come to us in the future because of present-day financial decisions. We can potentially realize some savings by changes in our financial behavior or our choice of investing vehicles, without resorting to austerity.

Do You Have a Financial Wellness Program?
Companies are luring & retaining employees with this key perk.

BY GREG OLIVER

greg@go2ofs.com

What do your retirement plan participants wish you would offer? Besides the chance to save and invest part of their paychecks, that is?

The answer could be “a little more help.” Last year, Charles Schwab surveyed workers contributing to the 401(k) programs it provides, and 46% wanted help “calculating how much I need to save for retirement.” Forty-three percent wanted assistance in “determining at what age I can afford to retire,” and 39% listed “figuring out what my expenses will be in retirement” as an item on their financial to-do list. Others wanted help with day-to-day financial matters, such as debt management and budgeting.1

Companies with 401(k), 403(b), and 457(b) plans are starting to respond. At some firms, basic enrollment pep talks on consistent contribution and explanations of asset allocation have been supplemented by degrees of financial coaching. This year, 59% of employers responding to an Aon Hewitt survey on the topic said that they were very likely to offer workers some form of financial wellness program beyond basic retirement saving instruction. This is up from just 30% of employers in 2014.1

Financial wellness programs can promote employee retention. When workers have money issues in their lives, both their health and performance may suffer. They may try to find a higher-paying job, effectively reducing their commitment to their current one.

Fundamentally, these programs teach financial literacy. Most people need more of that, including high earners. Corporations such as Activision Blizzard, Havertys Furniture, Home Depot, and Waffle House have installed such programs, and made them free to employees wanting insight on everything from handling student loan debt to college planning to making long-term care insurance choices.1,2

Small businesses are offering these programs, too. Financial services professionals are coming forward to work with established and emerging companies seeking a perk to attract first-rate employees. This financial coaching can take many forms, from group education to highly individualized counseling with the financial consultants assuming a fiduciary duty. Businesses would do well to ask about it, as employee loyalty is priceless.

Plan sponsors may also potentially lower their fiduciary risk by putting such programs into place. If employees change their financial behaviors and believe that they are improving their personal finances as an effect of a financial wellness program, they may be less inclined to complain about a company’s retirement plan offering – or worse, initiate legal action on grounds that the plan sponsor failed to meet its fiduciary responsibility. No business wants that.

Does your company lack a financial wellness program? Consider establishing one in the near future. If your competitors have not yet taken that step, chances are they soon will.